Scottish Trust Deeds are a popular debt solution for people in debt, primarily because it allows them to repay a percentage of their debt and have the remaining debt written off. However, what’s in it for the Trust Deed companies who manage the solution?
There’s plenty of advertising for companies “looking to help” with a person’s debt problem and potentially offering a way out of debt where “debt can be written off”. So, where’s the catch? Why doesn’t everyone just enter a Scottish Trust Deed, surely it’s a much better option than worrying about debt?
The Companies Offering Trust Deeds
In order to be able to provide a Protected Trust Deed, each company must have a qualified accountant who is regulated to manage this solution. However, how do Trust Deed companies get their clients who they help?
Well, there’s plenty of conjecture about how people in Trust Deeds end up at each company. A lot of people will go via a charity and be referred that way. This is probably the safest option.
Some people will complete an internet search and go with a company that says the things they want to hear. This is the most worrying as debt companies can lie. If it sounds too good to be true, it usually is.
TV, radio and newspaper advertising is huge for debt and Trust Deed adverts so people call these companies too. If a company is advertising via these mediums I wonder where they get their money to do this and still turn a profit.
Other people will be contacted out of the blue via a cold calling company and decide to proceed.
A lot of the routes to get a Trust Deed will still get you to the end goal, to enter a Trust Deed. However, whether it’s the right solution and with a company you can trust, is unknown. You need to make sure the company you choose to help you with your debt problem is going to provide honest debt advice and can be trusted.
Trust Deed Pitfalls
Trust Deeds are not for everyone, despite what the advertising may suggest. Trust Deeds have to be agreed by the debtor’s creditors and this makes the Trust Deed “Protected” so the creditors can’t change their mind.
A Trust Deed will ask a person to pay their monthly disposable income towards their debt, usually for 3 years. The person in debt will also be asked to contribute equity too. So, if you have a property where there is £20,000 equity, then this will need to be included too. However, average debt levels in Scotland are about £19,000. Consequently, paying £20,000 equity along with 3 years disposable income isn’t a great deal!
Debt solutions are never as scary when you know the pitfalls. So, let’s discuss the pitfalls of a Trust Deed.
- Trust Deeds can be missold. Trust Deed companies make thousands of pounds from every Trust Deed. Most of this is spend on administering your solution, so it’s not profit, but these debt solutions are very profitable. As a result, there are some companies who won’t give you the full details or explain all of your debt solution options. Independent advice from a charity is always the best option!
- “Your house is safe”. It’s an expression which a lot of people hear in a Trust Deed. Usually your house is safe but if there is equity then this must be released and added into your Trust Deed. Don’t ever risk it. If a Trust Deed company said “yes, you have equity but let’s forget that” or “that doesn’t matter”, question this! If your Trust Deed is ever sold then the new Trust Deed company will want to release this money. This can be done via a third party buying the equity (e.g. family or friend) or in the worst case scenario, selling your house. If your house is in negative equity when you enter the Trust Deed then you might get the chance to make a payment to discharge the Trustee’s interest in the property (usually about £600) which has to come from a third party. If you can do this then your house is guaranteed to be safe, even if there is equity at the end of the Trust Deed.
- Your Trust Deed will last 3 years. Usually a Trust Deed will last 3 years but you must make your monthly payments every month. If you fail to make your payments then the Trust Deed company will look to close the Trust Deed. If your Trust Deed is closed before you finish the solution then the debt will come back to you and money you’ve paid in will likely go to the Trust Deed company to cover their fees.
- Interest and charges will be frozen is a common phrase for Trust Deeds which people love, but the truth is that Trust Deed interest and charges are not frozen. The interest and charges will be written off at the end, so it seems like the interest and charges are frozen because you don’t repay this. However, if your Trust Deed fails e.g. you stop paying, then you will get the debt, along with the interest and charges back to deal with.
- “After my Trust Deed I’ll be able to get credit”. You will be able to apply for credit after your Trust Deed but there’s not guarantee you will get it and if you do it will probably be at a high interest rate. When you enter a Trust Deed your credit rating will be damaged for 6 years. A default is added to your credit file by your creditors which lasts for 6 years.
1 Pear Please….
I always liken debt companies to a fruit stall. If you walk up to a fruit stall and ask for “a pear please”, but they are sold out, then the market trader will suggest an apple, banana or orange. You know the taste of these fruits and you have the necessary information to make a balanced choice.
The same goes for debt companies.
If they don’t sell “pears” what will happen is you may be offered alternative solutions which they do offer. This is not necessarily the best route for you. For example, if a company doesn’t provide Protected Trust Deeds but they do offer debt management plans then there is a chance you will be offered the debt management solution instead. This can mean your debt solution will last considerably longer and you will pay more in fees than is necessary.
Safe Trust Deed Options
Registered charities are required to give you balanced and honest information. They will give you every option and possibility. A charity debt advisor will supply you with the benefits and negatives of entering debt solutions.
Always speak to a registered debt advice charity for advice before proceeding to get the debt solution. The debt charity will know which companies you can trust and the one’s to avoid!
You can speak to your local Citizens Advice Bureau for face to face debt advice, or alternatively, contact a free telephone debt charity like Debt Support Tru